Selling your pharmacy requires careful planning to ensure you receive the highest possible valuation. Maximizing the value involves ongoing diligence throughout the life of the pharmacy, as well as specific measures and strategies that can be taken when the decision to sell has been made. Several factors determine your pharmacy’s value, including its organizational structure and governance, financial health, employment obligations, legal and regulatory compliance, licensing and insurance status, and an evaluation of pharmacy assets and inventory.
Whether you plan to sell to an independent buyer, a retail chain, or a private equity firm, the following strategies will help maximize your pharmacy’s value and streamline the transaction process.
Legal Compliance and Record-Keeping Prior to Sale Negotiations
The time to begin thinking about selling your pharmacy is the day that you open the doors. Many of the measures that are necessary to maximize the value of your business are also important for the conduct of day-to-day business operations. Failure to implement those measures can reduce the value of your pharmacy and can also impair business operations and increase the risk of legal actions. Incidents that occur because of inadequate compliance measures can result in significant repercussions. It is thus imperative that you adhere to best practices with respect to compliance and monitoring efforts, especially when contemplating a sale.
Attention to detail and implementation of appropriate compliance policies are critical to maximizing the value of a heavily regulated business, such as a pharmacy. Pharmacies should ensure that they maintain sufficient record-keeping, including maintenance of corporate books and records, upkeep of financial records, and preparation of financial statements, as well as other compliance activities and recordkeeping specific to pharmacies, such as inventory, dispensing, maintenance of licensure, and compliance with requirements of PBMs and other third-party payors. Such measures will not only prevent unpleasant encounters with government agencies and third-party payors that can result in lost business and falling revenue but will also help to maximize the value of the pharmacy. Pharmacies should engage in periodic self-audits to ensure compliance with any regulatory and financial requirements.
Furthermore, it is important for pharmacies to maintain any pertinent information and documentation that buyers will likely request to verify the value of the business. For example, a prospective purchaser will typically request copies of licenses, financial statements, tax filings, documents pertaining to the pharmacy’s liabilities, insurance policies, and contracts to which the pharmacy is a party, including, but not limited to, contracts with wholesalers, suppliers, key customers, employees, landlords, and government agencies or third-party payors. Maintaining and understanding this information will permit you to more adequately assess your pharmacy’s value. Similarly, pharmacies should also maintain documentation related to the pharmacy’s licensing and credentialing. For example, this would include copies of the pharmacy’s licenses, initial credentialing and recredentialing applications, records of Board of Pharmacy inspections, third-party payor audits, etc. In pharmacy transactions, it is likely that buyers will inquire about such information, particularly to ensure that the pharmacy is in good standing with any licensing agencies and third-party payors.
Understanding Change of Ownership Requirements
A change in ownership may trigger certain obligations under your pharmacy’s contracts, such as the need for landlord approval under leases, and notification of change of ownership under PBM contracts, which can impose significant burdens that need to be cleared prior to consummation of the sale. Thus, a thorough review of your pharmacy’s contracts prior to entering negotiations for a sale may enable you to anticipate issues and save you significant time, effort, and money.
Collectively, these efforts can aid in identifying areas of potential growth and issues that may be negatively affecting your pharmacy’s value and profitability.
Conducting a Pharmacy Valuation
Understanding your pharmacy’s market value is essential for negotiating favorable terms with potential buyers. Buyers will expect verifiable and accurate financial records to justify the purchase price. When obtaining a valuation of the business, pharmacies will need to provide substantial information about the pharmacy’s performance, including, but not limited to, financial statements and tax returns for several years, prescription volume, and projected revenue and profits, along with any industry-specific considerations, such as the impact of post-point-of-sale fees (i.e., DIR fees).
More specifically, given that prescription volume is the pharmacy’s primary source of revenue, pharmacies can expect to provide dispensing reports detailing average prescription reimbursement prices, prescription volume, profits, numbers of patients and their respective new fills and refills, and drug mix, for at least the last two years. Such information is important for establishing the valuation of the pharmacy and helping sellers understand the position of their business when negotiating the purchase price and other related terms with buyers.
Structuring a Pharmacy Transaction to Maximize Pharmacy Value
As a seller, you must also consider the structure of the pharmacy sale. There are fundamentally two types of pharmacy transactions:
- Equity Sale: This involves the sale of the ownership interest in the legal entity that holds the license to operate the pharmacy. This method offers continuity but may pose financial risks if the pharmacy has outstanding debts or pending legal issues.
- Asset Sale: The existing pharmacy entity sells some or all of the assets of the pharmacy, such as equipment, inventory, and goodwill, to a buyer entity. Although an asset sale presents less risk to the buyer, it presents additional complexity since the buyer entity will need to obtain a new Board of Pharmacy license and new PBM, wholesaler, and other contracts, which can be time-consuming and cause delays in the closing. It may also be necessary to enter into a power-of-attorney or management arrangement where the buyer operates the pharmacy under the seller’s licenses and contracts until the buyer obtains new licenses and contracts.
Choosing the right structure depends on your financial goals, risk tolerance, and regulatory considerations.
Legal and Financial Considerations in Pharmacy Transactions
There are many nuances with pharmacy and life sciences transactions that are industry-specific, so it is important that pharmacies have knowledgeable legal and financial advisors to assist in the consummation of the transaction that yields the maximum profit for the seller. Experienced legal counsel ensures that fundamental deal terms that consider the nuances of the pharmacy are sufficiently incorporated into your purchase and sale documents. In addition to purchase and sale documents, there are several ancillary documents that are important, such as non-disclosure agreements or letters of intent, each of which can help protect the seller and facilitate a more amicable transaction, particularly where key business terms have already been negotiated. By engaging experienced attorneys in such transactions, pharmacies are better equipped to minimize transactional costs and mitigate potential exposure in areas of concern that typically arise throughout the sale process as well as post-sale, such as harsh indemnification and post-closing adjustment provisions, which can severely reduce your return on the sale.
How Frier Levitt Can Help Pharmacies Looking to Sell
Frier Levitt attorneys represent clients in a range of pharmacy transactions and have in-depth knowledge and understanding of the unique elements of pharmacy and life sciences transactions. Contact Frier Levitt for personalized advice and to ensure a smooth and profitable pharmacy sale in 2026.
